Taxes Are Complicated

The Wall Street Journal editorializes ($) admiringly on Fred Thompson's "voluntary flat tax" (or alternative maximum tax to use the tax code's current lingo). Putting aside questions of the desired size of government, cost, feasibility, equity and so forth, I'd like to zero in on the claim that "there would only be five lines on the tax form."

The current form 1040 uses 21 lines to determine total income. A better tax system would dispense with some of them (the difference between taxable and tax-exempt interest and Social Security for example), but we'd still be left with at least 15. After total income has been determined, the 1040 uses fifteen additional lines to get to adjusted gross income, several of which represent real reductions in ability to pay, such as jury duty forfeited to your employer and half of any self-employment tax paid.

Eliminating itemized deductions, such as those for home mortgage interest and state and local taxes, wouldn't help much either because they are tallied on a separate schedule, not the 1040. The only major paperwork savings would come from eliminating deductions for retirement savings and eliminating tax credits.

My point? Taxes are complicated for multiple reasons. First, the tax code is cluttered with junk. Second, the various forms of economic activity taxpayers engage in are complicated. Until we ban all forms of income other than wages and the interest on savings accounts, we aren't going to get a five-line tax form. We should stop assessing tax reforms by their postcard-return potential.

Posts and Comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.